Superfund Follies, Part II

Since 1980, the Environmental Protection Agency (EPA) has had the authority to clean up hazardous waste sites that pose an imminent and substantial danger to public welfare and the environment. Through 2005, this program, known as Superfund, has resulted in the expenditure of more than $35 billion in federal funds and an unknown amount of private funds—even though remediation remains incomplete at roughly half of the 1600 Superfund sites. Recent research reveals what we are getting for our money. Sadly, the answer is “not much.”

The Superfund program was created by the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), under which the EPA could place hazardous waste sites on the National Priorities List (NPL), as a prelude to cleanup. Among sites at which cleanup has since been completed, an average of $43 million in federal funds has been spent. Research by Michael Greenstone and Justin Gallagher (2008) reveals that the average benefit created by these cleanups is likely quite close to zero. By this measure, the Superfund program is failing badly.

In principle, Superfund cleanups should enhance safety and improve environmental amenities in the areas around the sites. Assuming that consumers value such outcomes, two predictions follow. First, these improvement should lead to an increase in demand for local housing in the areas around the sites. This will yield higher housing prices there (relative to elsewhere), and an increase in the quantity of housing supplied. Second, the environmental improvements should induce an influx of consumers, particularly those who value environmental amenities most highly

Greenstone and Gallagher test these predictions using housing market data for the period 1980 to 2000. They find that none of the predicted effects occur when sites are cleaned up. In particular, housing prices in an area around a site are substantively unaffected by the cleanup of the site, and there is no increase in the local housing stock in response to the cleanup. Moreover, there is no evidence of any movement of people into the area after the cleanup, as would be expected if the cleanups, in fact, reduced hazards in any way that individuals valued. By every measure, the Superfund program is failing to provide anything of value.

This is not the first attempt to measure the benefits of Superfund, but for a variety of reasons the paper represents a dramatic improvement in the state of our knowledge. First, past studies (many of which claim substantial benefits for Superfund) have used data from only one site or a few sites when seeking to estimate benefits. Greenstone and Gallagher have assembled comprehensive data on roughly 300 sites. The vastly larger scale of the present study gives us greater confidence that the results are likely to be valid.

Second, the authors have employed a research strategy that reduces the chances that their findings are contaminated by confounding factors. Prior studies compare housing market performance around cleanup sites relative to market performance elsewhere in the economy. The problem with this approach is that areas around Superfund sites tend to be much different than areas elsewhere. For example, they are lower income, more rural, and more likely to have large concentrations of mobile homes. This raises the specter that other, unmeasured differences between Superfund sites and locations elsewhere are responsible for any observed changes in relative housing market performance.

Greenstone and Gallagher avoid this problem by comparing areas around cleanup sites with areas around other sites where cleanup (also called treatment) was seriously considered by the EPA, but prevented by budgetary constraints beyond the EPA’s control. The authors show that Superfund sites and those sites that were almost Superfund sites are remarkably similar in terms of a host of observable factors. This reduces the chance that housing markets near treated sites are influenced by unobserved factors that differ markedly from unobserved factors around untreated sites.

Finally, while most prior studies have focused solely on housing prices, the present study also examines potential impacts on housing stocks, population, and population composition in treated and untreated areas. This not only gives a more comprehensive view of the effects of Superfund, it also provides a way to cross check the results: If Superfund, in fact, produces valuable outcomes, this should manifest itself in the many ways noted above. The fact that the authors find it does not manifest itself in any of these ways enhances our confidence that their conclusions are correct: For almost 30 years we have been spending vast amounts on Superfund sites, to an end that seems to be without value.

The authors do not address why Superfund is failing to produce any measurable benefits. At least two forces might plausibly be at work. It is possible that the true hazards of these sites prior to cleanup were much smaller than asserted by the EPA. Alternatively, the cleanup process itself may be failing to remediate what are very real hazards. Both of these forces are consistent with other research I have written about in this column (1999). Clearly, we would ultimately like to know which combination of factors is at work. But even though we cannot yet determine why Superfund is not producing measureable benefits, we can ascertain this: The Superfund program is failing and it is time to stop pretending otherwise.

The effect of government policy changes on the private sector has been the unifying theme that ties together Daniel K. Benjamin's broad-scale research. He not only examines the outcomes of policy changes, but also the reasons behind the modifications.Taxes, unemployment, risk assessment, and drugs have been the focus of much of Benjamin's...

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